market awaits new fasit regs

Timing on the Treasury Department's issuance of new regulations concerning financial asset securitization investment trusts (FASITs) has firmed up. The proposed rules will be issued no later than September, according to a source. The new rules will come from the Internal Revenue Service, under the jurisdiction of the Treasury, and look to clear a more negotiable path for issuers wanting to securitize using this new but rarely used structure.

A sizable market for the vehicle has already begun to form, as clients are clogging the phone lines in the tax department of one major asset-backed law firm, said a member of that firm, as less onerous access to the FASIT structure nears.

The interest in the structure is occurring for different reasons than in the past though, said a source.

"The main interest used to be to get debt treatment for a low subordinated tranche, to get credit support," the source said. "Now the flexibility is for collateral that would probably fail a REMIC test, but would would still be a taxable mortgage pool. For tax purposes, you can put all those into a FASIT structure."

A major contention between issuers and regulators, and what largely quashed the use of the structure for most in the past, involved exposure to large up-front charges that a FASIT structure could attract. Most believe the issue will be resolved with the new rules, spurring a spike in FASIT issuance going forward.

- SK

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